Procyclical Financial Behavior: What Can Be Done?

Lowe, Philip; Stevens, Glenn

doi:10.1057/9781137001535_9

Cited by 6 publications

(7 citation statements)

References 4 publications

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“…The second problem is related to regulatory authorities that can make the cyclical behavior of banks worse with the hypothesis "too much too late". That means, the slowly developed regulatory solutions to economic and financial problems have always been a potential danger (Lowe and Stevens, 2006). From macroeconomic perspective and that bank capital regulation can cause "procyclicality", meaning that bank capital regulations can increase the effects or strength of macroeconomic fluctuations (Covas and Fujita, 2010).…”

Section: Procyclicalitymentioning

confidence: 99%

Determinants of Bank Capital Structure and Procyclicality of Leverage: An Empirical Analysis From Turkey

Avcı¹

2016

mbrev

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This paper investigates the determinants of bank capital structure and procyclical behavior of leverage. A panel data analysis is developed to find out the relation between different type of leverage ratios and asset growth of banks. Furthermore, possible impacts of bank specific and macroeconomic variables on the bank capital structure are discussed. The paper concludes that Turkish banks' leverage is procyclical, which is the outcome of a positive relation between asset growth and leverage. The procyclical leverage could contribute to higher instability in the financial sector and the overall economy. Therefore, further regulations are assumed to be necessary. Size, profit, number of banks, inflation, exchange rate and gross domestic product are the factors that affect Turkish banks' capital structure.

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Section: Procyclicalitymentioning

confidence: 99%

Determinants of Bank Capital Structure and Procyclicality of Leverage: An Empirical Analysis From Turkey

Avcı¹

2016

mbrev

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“…There is a vast literature on currency mismatches and their link to financial crises; see, in particular, Goldstein and Turner (2004) and Eichengreen et al (2003) on key aspects of the policy debate; see Borio and Packer (2004) for an encompassing test of the various hypotheses, and Lowe and Stevens (2006) for an explicit link with procyclicality.…”

Section: Foreign Currency Borrowing 1 16mentioning

confidence: 99%

What Can (Macro-) Prudential Policy do to Support Monetary Policy?

2007

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In the economic environment that has been emerging over the last couple of decades, it is more likely that the occasional build-up of financial imbalances, typically in the form of unsustainable credit and asset price booms, will occur against the background of low and stable inflation, posing a potential threat to financial and macroeconomic stability. This means that the scope for monetary policy to lean against the build-up may be more constrained than in the past, when those imbalances would normally develop alongside rising inflation. This puts a premium on a strengthening of the macroprudential orientation of prudential frameworks, designed to restrain the build up of the imbalances and to make the financial system better able to withstand their unwinding. In this paper, we review the progress made in this direction in recent years. We conclude that there is now a much keener awareness of the importance of a macroprudential orientation but that progress in making it operational, while considerable, has been slower. The main obstacles are of an analytical and, above all, institutional/political economy nature. We suggest ways in which these obstacles could be addressed and underline the potential complementary role that adjustments in monetary policy frameworks could play.

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“…In this way, provisions build up during economic expansions to be drawn upon during downturns. However, where provisioning meets obstacles from the accounting profession (often accountants do not like the fact that, as a result of ex-ante provisioning the value of loans on the balance sheets is less than their face value), countercyclical capital requirements could be considered instead, to ensure that banks have a capital buffer to be used in bad times (Lowe and Stevens 2006).…”

Section: Basel IImentioning

confidence: 99%

“…when capital flows out of the country. Allowing the exchange rate to decline hits the balance sheets of the unhedged borrowers of foreign currency; raising interest rates to support the exchange rate damages borrowers in domestic currency (Lowe and Stevens 2006). Reducing or eliminating such mismatches -either by companies borrowing less in foreign currency, using instruments like GDP-linked bonds that reduce debt service in bad times or by hedging their foreign debt serviceopens space for monetary policy to be more expansionary in the face of contractionary shocks.…”

Section: New Policy Challengesmentioning

confidence: 99%

Stephany Griffith-Jones

Gottschalk¹

2007

IDS Bulletin

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Procyclical Financial Behavior: What Can Be Done?

Cited by 6 publications

References 4 publications

Determinants of Bank Capital Structure and Procyclicality of Leverage: An Empirical Analysis From Turkey

Determinants of Bank Capital Structure and Procyclicality of Leverage: An Empirical Analysis From Turkey

What Can (Macro-) Prudential Policy do to Support Monetary Policy?

Stephany Griffith-Jones

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